DBRS Morningstar Confirms Rating on PFS Financing Corp.

DBRS, Inc. (DBRS Morningstar) confirmed the rating of R-1 (high) (sf) on the Series 2011-A Notes issued by PFS Financing Corp.

The rating action by DBRS Morningstar is based on the following analytical considerations:

(1) DBRS Morningstar's assessment as to how collateral performance could deteriorate due to macroeconomic stresses brought about by the Coronavirus Disease (COVID-19) pandemic.
(A) In the moderate scenario described in its commentary "Global Macroeconomic Scenarios: Implications for Credit Ratings" published on April 16, 2020, DBRS Morningstar currently expects that the coronavirus will begin to be contained during Q2 2020, resulting in a gradual relaxation of stay-at-home measures and nonessential business closures, allowing a gradual economic recovery to begin starting in Q3 2020. Additional information regarding DBRS Morningstar's set of macroeconomic scenarios for select economies related to the coronavirus pandemic can be found in its publication "<a href="https://www.dbrsmorningstar.com/research/359679/" target="_blank">Global Macroeconomic Scenarios: Implications for Credit Ratings</a>."
(B) While delinquencies and defaults by underlying customers may increase due to the impact of the coronavirus, the transaction benefits from protection afforded by the right of the issuer to claim the unearned premium from the insurance provider in the event the underlying customer defaults. The relatively high credit quality of insurance providers in the collateral pool is ensured by the concentration limits with respect to minimum exposure to carriers at or above certain investment-grade ratings and single-carrier limits tied to the credit rating.
(C) Historical annual losses averaged approximately 0.28% over the period of time spanning the recessionary environments, including the financial crisis of 2008–09.

(2) The transaction terms require that the rolling three-month ratio of new loans-to-total premiums remains below 85.00%, providing a 15% down payment cushion protecting the unearned premium amount, which may be claimed upon an obligor default.

(3) The loans are short term, with a requirement that 96% of the portfolio must have terms of 11 installments or fewer.

(4) The most recently reported collateral performance (as of the April 15, 2020, Payment Date) has been in line with original expectations.

(5) The transaction parties’ capabilities and track record with regard to origination, underwriting, and servicing.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
The principal methodology is the DBRS Master U.S. ABS Surveillance Methodology (July 31, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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